Q4 2022 Conocophillips Earnings Call

February 2, 2023

Okay.

Welcome to the Q4 2022 Conoco Phillips earnings Conference call. My name is Michelle and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer says.

If you have a question. Please press star one one on your Touchtone phone I will now turn the call over to Phil Gresh, Vice President Investor Relations, Sir you may begin.

Yes, Thank you operator, and welcome to everyone joining us for our fourth quarter 2022 earnings conference call on the call. Today are several members of the Conocophillips leadership team, including Ryan Lance, Our chairman and CEO , Bill Bullock Executive Vice President and Chief Financial Officer, Domenic, Maclin Executive Vice President.

Our strategy sustainability and technology, Nick <unk> Executive Vice President of lower 48, Andy O'brien Senior Vice President of global operations, and Tim Leach advisor to the CEO .

Ryan and Bill will kick off the call with opening remarks, after which the team will be available for your questions. A few quick reminders first along with today's release, we published supplemental financial materials and the presentation, which you can find on our Investor Relations website second during this call we'll be making forward looking statements based on current.

Expectations actual results may differ due to factors noted in today's release and in our periodic SEC filings finally to make we will make reference to some non-GAAP financial measures reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website with that I will turn the call over to Ray.

Thanks, Phil and thank you to everyone for joining our fourth quarter 2022 earnings conference call.

We sit here today, there are a number of cross currents in the global economy.

While the energy sector is not immune to potential macro headwinds our fundamental outlook remains constructive.

The demand side, we think that growth will continue in 2023 aided by a normalization in China mobility following the loosening of Covid restrictions.

On the supply side, we believe the continued producer discipline and the expected impacts of Russian oil and product sanctions.

Likely to keep balances type.

So while commodity prices are currently not as high as they averaged in 2022, we see duration to this up cycle.

About stepping back we remain steadfast in our view that a successful energy transition must meet societies fundamentally for secure reliable and affordable energy, while also progressing toward a lower carbon future.

While we all recognize the challenges that global energy policymakers face to achieve the goals of the Paris agreement. It is clear that doing so requires an all of the above approach.

This can be done by enacting policies that encourage the development of lower emission energy sources and oil and gas resources.

These policies should include efforts aimed at fiscal stability streamlining of the permitting process increase transparency on timelines and supporting critical infrastructure.

These are not just necessary for the oil and gas industry, but also for nuclear hydrogen and renewables all of which will be necessary to deliver on the energy transition at the end of the day, it's critical for our administration to remember the North American energy production as a stabilizing force for both global energy security and meeting energy.

<unk> transition demand.

Meeting that demand will require investments in medium and long cycle projects. In addition to short cycle U S. Shale. This is why you see conocophillips leaning a bit further across our deep and diversified portfolio in 2023.

Whether it's the lower 48, where we achieved record production in 2022 are our diversified global portfolio Conocophillips is well positioned to meet the worlds long term energy needs, while also reducing our own emissions footprint.

Shifting to our 2022 performance.

Article Phillips showed continuous strong execution across our triple mandate we.

We generated a trailing 12 month return on capital employed of 27%.

Since the spin.

We delivered on our plan to return $15 billion of capital to our shareholders, which represented 53% of our CFO , while in excess of our greater than 30% annual through the cycle commitment.

And we further advanced our net zero operational emissions ambition with a new medium term methane intensity target consistent with our recent commitment to joining GNP to find out.

Now looking ahead conocophillips is well positioned to further deliver on our triple mandate in 2023 with a well balanced capital allocation strategy. This morning, we announced our plan to returned 11 billion of capital to shareholders, which represents about 50% of our forecast and CFO at $80 <unk>.

The other half of our cash flow will be dedicated to reinvesting in the business.

From a portfolio perspective are deep and well diversified asset base is well positioned to generate solid cash flow growth for decades to come.

This is further evidenced by our organic reserve replacement ratio of 177% in 2022.

We're also enthusiastic about our new LNG opportunities, we are participating in in Qatar and the United States, which are highly complementary to our existing LNG business.

And we look forward to providing you a comprehensive update about our long term strategy and our financial outlook at our upcoming analyst and Investor meeting on April 12 at the New York Stock Exchange.

Now, let me turn the call over to Bill to cover our fourth quarter performance and 2023 guidance in a bit more detail.

Thanks Ryan.

Starting with fourth quarter results, we generated $2 71, and adjusted earnings per share.

Fourth quarter production was 1.758 million barrels of oil equivalent per day, which included a 27000 barrel a day negative impact from weather in the lower 48.

Lower 48 production averaged 997000, including 671 from the Permian.

214 from the Eagle Ford and 96000 from the Bakken.

Moving to cash flow fourth quarter, CFO was $6 5 billion, excluding working capital at an average <unk> price of $83 per barrel.

AP LNG distributions were $639 million.

And fourth quarter capital expenditures were $2 5 billion.

Including $2 $1 billion of base capital and $300 million for acquisitions, and Northfield East payments.

On capital allocation, we returned $5 1 billion to shareholders through ordinary dividends <unk> payments and share buybacks.

While also reducing gross debt by $400 million.

Full year CFO was $28 5 billion, excluding working capital at an average <unk> price of $94 per barrel in 2022.

Full year AP LNG distributions were $2 2 billion.

And full year total Capex was $10 2 billion with base Capex, achieving our guidance of $8 1 billion.

And $2 1 billion of acquisitions in Northfield East payments.

Full year return of capital was $15 billion, while $3 4 billion went to debt reduction with cash and short term investments ending the year at $9 5 billion.

Turning to 2023 guidance, we forecast full year production will be in a range of $1 76 to one 8 million barrels of oil equivalent per day.

Which represents 1% to 4% organic growth.

Our first quarter production guidance range is $1 72 to $1 $76 million, which.

Which includes 35000, a planned maintenance primarily in Qatar and the lower 48.

Our full year planned maintenance is expected to be similar to 2022.

On capital spending we expect a range of 10, 7% to 11 3 billion, which I will discuss in more detail in a moment.

We expect operating costs of $8 2 billion DD&A of $8 1 billion in corporate segment net loss of $900 million.

For 2023 cash flow, we forecast 22 billion and CFO at $80, a barrel of <unk> 85, Brent and 325 Henry hub at current strip prices for regional differentials.

Included in our cash flow forecast is $1 9 billion in AP LNG distributions with $600 million expected in the first quarter.

Now regarding capex.

We provide a waterfall in our prepared materials bridging 2022, actual spending to 2023 guidance.

Starting with base capital spending we forecast an increase from $8 1 billion in 2022 to a range of nine 1% to $9 3 billion in 2023.

The remaining one six to two point or one.

Billion is allocated longer term projects.

Of this amount $1 five to $1 six is port LNG projects, which.

Which includes port Arthur.

Northfield East and Northfield South.

For Port Arthur specifically after factoring in expected project financing, we forecast that Conocophillips net investment will be just under $2 billion over the five year investment period.

However, more than half of this capital investment will be in 2023.

For Willow, we're guiding to $100 million to $400 million of incremental spending with the higher end of this range assuming that the project is sanctioned this year.

In summary, we're happy with our strong 2022 results, which would not be possible without the hard work and dedication of our talented workforce.

And we are well positioned to balance investing in our deep and diversified portfolio of this year, while also continuing to return capital to our shareholders.

That concludes our prepared remarks, I'll now turn the call back over to Phil.

Great. Thanks, Bill as a reminder, just before we go to the Q&A. We ask that you. Please keep it to one question and a follow up with that Michelle we're ready to turn it over to you for Q&A.

Thank you we will now begin the question and answer session. If you have a question. Please press star one on your Touchtone phone if you wish to be removed from the queue. Please press star. One again, if you are using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press star one line on your Touchtone telephone.

Our first question will come from Neil Mehta with Goldman Sachs. Your line is now open.

Yes, good morning team and thanks for taking the time.

Our first question is around Willow and recognize there is still some gating factors to getting it towards that but it seems to be moving the right direction. So just talk about.

How youre thinking about that project, what remains outstanding to get it to half.

And then any thoughts on costs as well the latest number we have is $8 billion. All in is that still good to go buyer how should we think about that.

Hey, Neil this is Andy yes, there's been a lot of moving parts on the on what is since the last earnings call.

Just step through where we are in the overall approval process.

Can class, where we are with Capex and scope.

So with the approval process I think most people saw the final supplemental environmental impact statement was released by the by the administration earlier this week.

Now that should be published in the Federal Register and the next day or so and then that starts the required 30 day clock before the rod can be issued.

Now given the buyback administration's commitment to the Alaska congressional delegation.

And expect to receive that Rod and the first week of March.

Once that Rod has been issued all focused for 2023 will be to immediately initiate gravel road construction ramp up fabrication and supply chain activities.

Now we can maybe to take a look at the Rodman some detail, but assuming it is consistent with the <unk> three pad preferred alternative and there are no new on workflow restrictions added. We would then proceed to final investment decision.

So switching to Capex 2023 is very dependent on the timing and as Bill mentioned, we've given a range so with the rough timing any resolutions of outstanding issues. What we're guiding is about $100 million to $400 million of incremental spend in 2023.

In terms of the total project costs were.

Have recently gone out to market to update our cost estimates and we have seen some inflationary pressures.

We've also refined the scope, including an update to accommodate the <unk> three pad affiliate alternative.

So we're in the process of finalizing our cost estimates, but we'd anticipate the AFP to first production to be in the seven to seven and a half billion dollar range.

The increase versus the update we provided in 2021 is split about 50 50 between inflation and scope refinements.

Hope that gives you a pretty good update on where we are with what island.

April Investor Day, where we can happy to go into some more details than that.

Seven five and compares to the six before it sounds like you think Apple's.

Apples to apples.

And then that last correct, that's an apple.

Okay. That's great and then as a follow up is just around return of capital last year was an outstanding year of 53% back to shareholders.

The cash flow and the guidance this year $11 billion also implies.

Very strong return of capital number.

I know, we often anchor to the 30% or greater than 30%.

Is the message we should be interpreting that theres, a new normal here year around return of capital and the bar has been reset higher.

No there were not trying to message.

But what I remind people as the 30% commitment that we have is a through the cycle commitment. We've also signaled to our results will told the shareholders that when prices are above our mid cycle price you should expect higher distributions for the company and Thats consistent with what we've done over the last number of years so as we.

Look today at where the strip is trading where the regional differentials or add we've kind of picked $11 billion at at an $80.

Rice deck. So that's how we're going into the year. It represents about 50% of our cash flow, but again that <unk> is well above our mid cycle price and our commitments tied to the through the cycle kind of mid <unk> mid cycle price call.

It just represents that we are constructive with the environment that we see today and we expect the prices to be above our mid cycle price call, which should inform the distributions would be above that 30% as well.

Great. Thanks, Neil next question.

Our next question will come from Doug Leggate with Bank of America. Your line is now then.

Well, thank you and good morning, everyone.

You guys already.

So I think.

I didn't actually get to write down the numbers quickly enough could you just go through again the expected cadence.

Of the three LNG projects.

Disclosure I think we had expected a slower piece on Sempra, Oregon Port Arthur I guess, so could you just walk us through what you. How you expect that cadence to look please that would be really helpful. I've got a follow up please.

Yes, sure Doug I'm happy to so let me just kind of start with a bit of a high level view, we put into the bridge from 2022 to 23 in our our documents for today and I'll, just I'll start with kind of our exit rate. So if you look at our fourth quarter base capital spend that would annualize.

About $8 9 billion with a low single digit inflation rate versus 22 exit rate and we've got some phasing in Norway and the additional incremental emissions reduction that gets you to about $9, two which is midpoint of our guidance and then really the incremental spend is on LNG project and Willow and that gives us to $11 billion.

Midpoint of the guidance range.

And I think that the primary issue here on cadence is likely the front end nature of Port Arthur LNG spend which really the market had no way of knowing.

As Youll recall <unk> communicated a phase one gross cost of $10 5 billion for the EPC.

On top of which there is going to be owner's costs and other miscellaneous costs to bring the project online and Doug. The project currently lining up debt financing for a portion of this spend so you roll that all together, we would expect our 30% share of the net equity capital to be just under 2 billion.

Over the five year investment period.

But the front end nature of the equity component is going to result in over half of that $2 billion occurring in 2023.

That's what we've included in our 2023 capital guidance.

Now the project is still waiting on but we do expect that in the first quarter and we will be talking to you more about this in April .

But if you have been modeling a more ratable spend over five years for port Arthur that would be about $400 million in 2023 are about to 6% to $700 million less than our guidance. So I think that that might be some of what you're seeing in kind of the LNG spend and I think it's obvious with over half of the port Arthur spend in <unk>.

'twenty three obviously, the spending 2024 and beyond is going to be less than a ratable rate, but I think that's probably the main gap in in LNG spending that youre seeing.

That's really helpful. Don you're exactly right, we were not expecting half but of course that means the other half is.

Is probably more reasonable I'm guessing overtime.

Really helpful.

My follow up is a favorite topic of mine, so I hate to get in the weeds here, but.

Again, another sizable deferred tax credits this quarter, although it does kind of look a little bit more.

It's almost like you are moving to a new normal based on your U S spending thinking IDC and things of that nature can you maybe just am I.

Thinking about that rates should we be expecting as a reasonable.

Third cuts credit going forward in your cash flow and I'll leave it there. Thank you.

Well, yes.

Taxes were a source of a $5 billion in the fourth quarter, Doug we had a source.

<unk> $700 million in the third quarter.

Now the source of those deferred taxes is primarily due to the impact of intangible drilling costs generating a deferred tax liability is now that we're in a U S cash tax paying position now.

Now as we look at 2023 at current investment levels, we'd expect deferred taxes are going to continue to generate a source of cash on a normalized pace that phase.

Basis.

But I would expect that deferred tax source full year to be lower in 2022 now we are in a U S cash tax paying position for the full year, but we also utilize all significant U S. Net operating losses, Nols and EUR credit carryforwards in 2022.

That utilization generated a larger source of cash last year compared to what we're going to be seeing in 2023.

Got it thank you thanks.

Thanks next question.

Yeah.

Our next question comes from Steve Richardson with Evercore. Your line is now open.

Thank you.

Ryan there's been a lot of focus on the Permian basin of late certainly from a industry perspective.

And not all of it has been.

Good.

Say and I'd Love, if you just take a moment and help us differentiate.

Conoco's assets in the basin, what Youre seeing from your asset.

And.

Certainly some of the performance speaks for itself, but I'd love if you could address that.

Today.

Yes.

Thanks, Steve Let me make a couple of comments and then I'll turn it over to Nick for.

Maybe a couple of his thoughts and a bit more.

Until you know.

No we're not worried about.

Our long term development plans in the lower 48, we see durability to our plans and I know theres been a bit of noise about productivity in length and durability.

For a long time, we know what we're doing after our after the acquisitions that we made over the last year and a half.

I don't have any concerns about the durability of the length of the efficiency of our program and maybe I'll, let Mick provide a few more detail and color on that comment yes. Good morning, Steve Yes, So I'll give a little more color on that one maybe start with this the well performance that we're seeing versus the type curves. So if you look at our 2022 development.

Wells, they've been performing slightly above the curve expectations across all four basins, including the Permian basin.

And that strong performance reinforces and validates the development plans that Ryan just mentioned, which is our focus on maximizing returns and recovery, while minimizing the future interference. So if we step back in time, we've been incorporating a lot of the learning curve from our developments over the past three to four years.

In fact.

We look at our accelerated learning curve, we've drilled the most horizontal wells.

In the Delaware and Midland Basin more than any other company. So when you combine that data along with our significant operated by others portfolio and then the learnings in our mature development in Eagle Ford and the Bakken, That's really helped us hone in on the best development approach of the stack. So.

So in summary, Steve if you look at our production performance at or slightly exceeding type curve expectations combined with a development strategy. We're very confident in our long term outlook for these assets and we will update you more at aim.

That's great. Thanks, I really appreciate it if I could just one quick follow up Nick could you just address the <unk>.

25000 acres of swaps and coring up that you mentioned this morning.

I mean, one of the questions I guess.

Steve.

Oh, sorry.

Sorry.

No we didn't catch your question.

Sorry, I must be the phone line.

Question is on the.

You have the 25000 acres on the core App.

And.

Just wondering if we could to address Nick how much more to go is there on that on that side and where are you just looking at the checkerboard of it of the map down there.

Yes, Steve maybe I'll just go back for the whole audience on what we've done in that space.

We've been very focused on the acreage optimization as you mentioned on trades and swaps.

Last year, we completed 15 trades.

And that gives us a total of about 25000 acres since the Concho transaction now a couple of points that I just wanted to address these core ups have doubled the average lateral length of more than a year's worth of inventory that's at our current level of drilling activity now.

Now the ability to drill extended laterals greater than one mile can reduce our cost of supply by 30% to 40% So thats significant.

Now to put that in perspective, Steve our quality position in the premium has an inventory was roughly 60% of our wells that are greater than two mile lateral 60% and then if you look at one five miles or greater that's an additional 20%. So that's a robust inventory that we have out there now.

Now if you will continue to as you mentioned the core up in 2023 through <unk>.

The acreage in swaps there, but we've got a significant deep robust inventory with those longer laterals.

Thanks, so much great. Thanks, Steve.

Next question.

Okay.

Our next question comes from John <unk> with Jpmorgan. Your line is open.

Okay.

Hey, guys. Good morning, Thanks for taking my question.

Hi, My first question, just kind of a broad one on the upcoming Investor Day, you guys haven't done one for several years.

Anything on what we can expect from the presentation in terms of the longer term plan or maybe breakdown of certain aspects of the project.

And that would be great.

Yes, John Thanks.

I think we'll show why we're pretty excited about where the company has gone out and they've got a better plan.

<unk>.

The strategic and the financial planning of the company or got better duration, better better depth and we'll show we'll show that to you what it means for the company for decades to come but I mean, so we're pretty excited about about where it's at we will do a deeper dive into where we're at in the lower 48, our global our global portfolio.

As well as the LNG business that we've been developing here over the last year and a half so I look forward to sharing.

Our excitement around our plans, we're instead it and just the quality of what we're doing both strategically and financially.

Great. Thanks, Brian and then.

A question on the guidance for <unk> production.

A little bit below the full year guide and you guys called out the maintenance number there and then maybe just some color on would be helpful.

How you expect production to feed them throughout the year should we expect it to be more backend loaded.

To be more towards the middle given the later <unk>.

Okay.

Hey, John It's Dominic here, so, yes, I think as bill remark.

We do have above normal seasonal maintenance in the first quarter that Qatar train six and seven but also eagle.

Eagle Ford Sugarloaf.

<unk> that facility down there we've actually been.

Comparing that put a bit of expansion. So that explains the Q1 slow rate, but thereafter.

Expectation is that each quarter will be around 2% to 3% year on year growth. So.

So thats really our base case.

Thanks, John .

Next question.

Okay.

Our next question comes from Jeanine Wai.

With Barclays. Your line is now open.

Hi, Good morning, good afternoon, everyone. Thanks for taking our questions.

Our questions. The first one good morning Ryan.

First one maybe following up on Neal's question on the cash return for the year, we realize that it's still early in the year, but you've already declared the <unk> for the first part of the year.

Or would you ultimately thinking about the split of the $11 billion of total cash return between cash and buyback and as the buyback more of a function of your mid cycle price assumptions.

Yes, I think.

The majority of our buyback is tied back to ratably buying our shares at our at our mid cycle price assumptions. So we tried to ratably buy some shares as we go go through the year and then we buy some variable shares depending on where we see the market I would say is we're going into 2023 right now we're thinking roughly 50, 50% between cash.

And shares in terms of absolute return back back to the shareholders. So the $11 billion would be split roughly five five and five and a half that's our thinking as we start the year, but we will watch the commodity price and where things develop as we go through the course of the year.

Okay very helpful. Thank you will pencil that in.

Alright second question sticking with 23, but move into Capex here.

It is that there is about $5 million to $600 million of incremental inflation included in the budget versus 2022, and there is some noise with the categorization of the port Arthur spend but it looks like lower 48 will comprise about 60% of total capex for 'twenty three and so our question is how much of that five to 600.

Incremental inflation is in the Permian in lower 48 versus maybe other parts of your portfolio and what's your estimate on how inflation ended up by region in 'twenty, two and maybe any assumptions that you have in your budget for 'twenty three inflation. Thank you.

Yes, let me take a quick high level shot I think if you kind of looking at exit rates from 2023 to 2022 going into 2023, it's kind of low single digits. If you kind of look at it what's the increase annually year over year, it's more like mid single digits I think the difference we're seeing this year, maybe relative to last year as well.

See that mid single digit inflation applying across the whole global portfolio and it's slightly higher in the Permian to the question that you asked so yes. We're in we're seeing some categories of spend that are key to the company actually start to plateau, and maybe have a rollover a little bit.

One that we're watching pretty closely as of CTG.

<unk> some of the raw materials that are growing innovation those are starting to come down and deflate a little bit. So we're starting to see that to that category of spend sort of rollover. We're seeing the rate of increase got it in the onshore rig market start to lessen a little bit which is good but we need that and so when we kind of wrap all of those categories of spend.

Together for the company it kind of manifest itself in a year or annual year over year inflation in the mid single digits.

Great. Thank you.

Thanks, Jamie next question.

Okay.

Our next question comes from Ryan tight.

Apology, Todd with Piper Sandler.

Thank you.

Maybe.

I'll follow up on the Permian I'm not sure. If you mentioned this earlier, but can you tell us.

A little bit about what is assumed in your current guidance I guess for both capital and production for the year. It sounds like the guide assumes.

In a flat activity levels in the Permian versus versus late.

2022 is that correct.

In terms of how we should think about activity levels and how should we think about the trajectory of production.

In the Permian over the course of 2023.

Yes, Brian this is Nick.

Let me talk to you walk you through that so as you mentioned, we've assumed a level loaded steady state program for 2023 based on that second half of 2022, four rigs and Frac crews.

Focus for this year will really be around improving capital and operating efficiency now we do expect some modest growth in partner activity as the year progresses, and then we have some larger operated pads that will come online and kind of <unk>.

So our lower 48 plan will deliver production in that mid single digits with the majority of that growth weighted to the Permian now with respect to the profile shape. It will be kind of mid to back end weighted in 2023 and as we talked about Dominic mentioned this we do have that Eagle Ford Sugarloaf stabilizer.

Maintenance, that's going on and actually I am pleased to mention that the turnaround that Dominic referred to as five days and we completed that successfully in January .

Now, we will have a little bit of brownfield modifications on that stabilizer through mid February as well.

And then I'll mentioned to kind of month to month, we will have.

Wells, a little bit of Lumpiness, but it is backend and will be weighted in 2023 for a production profile.

Great. Thank you.

And then.

As we think about your your emerging kind of global gas strategy.

Should we think about your approach to the gas portfolio. In these projects should we expect the majority sold under long term contracts with the percentage held for spot sales.

You listed correspondingly build out your global gas trading capabilities similar to European peers.

And maybe as Youre out marketing. These volumes are you seeing anything to comment on in terms of.

The environment.

Whether whether global gas this tightness is helping.

Sales pricing out there.

Danny.

High level views on their global gas strategy, there would be great.

Okay.

Yes sure this is bill.

So I'll just start with you know, we've got a really strong understanding and presence in the LNG market.

<unk> had for several years, where we're regularly selling spot volumes into Asia off of our <unk> joint venture and we do think that Europe is going to be a long term market for U S Gulf Coast.

You will have seen where we recently secured re gas capacity in Germany, which we're really happy about and excited about.

We're looking at the best options in terms of long term placement that these are 20 year projects off the Gulf Coast and so we think that the long term strength of the international pricing relative to U S gas is going to be pretty interesting and that's the driver in that strength in LNG, we think it's going to be driven by us.

Our role in energy transition and reducing carbon emissions. So.

As you see us build out our LNG portfolio over the next few years, we may take some longer term contract decisions then there, but right now we're not really disclosing where we're at for competitive reasons in terms of how we are developing that market.

Great. Thanks, Ryan Thanks.

Michelle next question.

Okay.

Yes.

Our next question comes from Devin Mcdermott with Morgan Stanley . Your line is now open.

Hey, good morning, Thanks for taking my questions.

So I wanted to first follow up on some of the Capex questions earlier, you laid out the $1 $62 billion of spending this year on major projects and you talked with some good detail about port Arthur it's not necessarily ratable across the projects, but when you put it all together I was wondering if you talk about how you see the magnitude of major project spend evolving or.

Changing over the next few years outside of Port Arthur where some of the key moving pieces that we should be thinking about across the projects that could move that number higher or lower.

Yes, I think we tried to explain a bit about the front end loading of the port Arthur projects. So you ought to expect that is going to come down as you look into the two three or four years some of the other moving pieces.

If the commodity price environment supports that we want to see some ramp in our lower 48 activities to our optimized plateau across.

Across the various assets Youll see willow ramping up if we get adequate project approval from the federal government.

So the battle.

That will come in and then obviously there is some inflationary forces as well as we think about think about where it's going so there is a lot of moving pieces, but.

That's kind of how you should think of the different pieces that we're looking at as we kind of think about the longer term nature of the capital and we'll be prepared to talk about that in a.

At our analyst meeting coming up in April .

Got it makes sense, Hey, just a quick follow up on on NFS and NFS are those fairly ratable over the next few years any additional color on those projects specifically.

Yes. So this.

This is bill your thoughts.

The fourth quarter makeup our initial catch up payment on if fee and then you should expect that those projects are funding through the next couple of years.

Okay. Thank you.

Thanks, Kevin next question.

Our next question comes from Paul Cheng with Scotia General Your line is now.

Hey, guys.

Good morning.

Hey, Michael.

Brian can I go back into Permian, you guys talking about earlier in your prepared remark on that yet.

Inventory for the two mile well I think the industry also think that pre mildly actually will have even better can.

Can you talk about that.

Based on where you are today, what's the inventory that on the three miles.

That's a lot of opportunity. There you also don't know whether it does or not.

You can pull why on the Pepto.

Longer term plateau rate that you expect for Permian and that win that you would be able to get there.

So thats. The first question. The same question that I have to say I will say, it's still pretty impressed that Bakken production, yet that case Matt.

<unk> from the third quarter.

Given that the winter storm keep them sort of come off the 27000 barrels per day, how much is on the Bakken and then how you would be able to get it. So that you can actually get you to correct.

Alright, Yes. This is Nick.

I'll just kind of walk you back through kind of the inventory related to our longer laterals as we've done the core up again over 60%.

Is greater than two mile laterals and that does include the three miles as well. So that's a significant part of our inventory in the Permian Basin. We've actually this last year in 2022 brought on I think more than 30 wells that are in the three mile category and are seeing very encouraging results. So we'll continue to execute those as we go forward.

<unk> as as we continue to core up and do swaps that will give us more inventory as well for that longer lateral execution again, you will see probably cost of supply of about 30% to 40% reduction as we drill those longer laterals.

Dominic.

I'm sorry, not dominate for the 60% you are talking about.

How much what percent of them yet actually.

<unk> category.

Yes, Paul I don't have that in front of me at this point in time, but let's wait till aim and I'll give you a further update on the on that overall three mile categorization.

Okay.

Okay on your.

Your second part of that first question related to plateau again, we'll update the group on the overall Permian Plateau Eagle Ford Bakken.

April 12, Investor Day, obviously, there's a number of factors that go into that the macro maintaining execution efficiency continuing to capture the learning curve and capital efficiency right now with our middle mid single digit growth, we feel thats right in line with what we've communicated earlier.

And then your second question was related to weather I'm glad you brought that one up again. The Bill you had mentioned 27000 barrels a day for fourth quarter 2022, just a quick breakdown on that Thats 13000 for Permian 10000 for Bakken and then less 4000 in Eagle Ford.

I think you asked kind of maybe quarter to quarter Q3 to Q4, you are right. It was flat at 96000 barrels.

<unk> per day.

And Paul the main driver for that is what we had some really strong operated wells that carried into Q4 and then on the operated by others. We had some larger pad projects come online in Q4 that offset that weather.

Thanks, Paul next question.

Sure.

Our next question comes from Bob Brackett with Bernstein. Your line is now open hey.

Good morning, a bit of an old school question on your reserve replacement historically, LNG <unk> were big blocky chunks of gas reserves going into the portfolio, that's not really going to be the case for our midstream asset like port Arthur but I am curious can you go into a little more detail on the oil gas mix shift.

The reserve replacement and how to think about the cadence of LNG coming in through that.

Hey, Bob It's Dominic here, yes.

So let me talk a bit about I mean, obviously very pleased with our.

Organic reserve replacement ratio this year of 177%.

The real drivers for that I mean, obviously the LNG, we did have some bookings there for <unk> as we commence payments. So NFC we also.

So some.

Some bookings from AP LNG performance.

From for some projected advancements in noise, our international portfolio is contributing but the main the main area. This year was actually in the low 48 development program and Thats, particularly in the Permian and that included an increase to our pud bookings by extending the proved David we have established by reliable.

Technology, which is an FCC terms is consistent with SEC requirements and so basically we have a very extensive geoscience and reservoir engineering data set across the Permian now that allows us to support that so.

And you'll be aware Bob just.

The rigor in the process and the controls governing the reserves booking process. So this further demonstrates the depth and quality of our lower 48 inventory. So that's really the story this year going forward.

We will continue to see bookings in the lower 48.

We'll see bookings in Alaska, obviously with pending.

And then we will continue to see some LNG bookings as well, particularly on the resource projects as we call them NFS and NFS, absolutely right, what you're saying about quarter of that.

So I think youll see a mix going forward as it stands now a low of 48 represents about 46% of our reserves.

And the remainder across international so.

But yes, we have.

Certainly appreciating the performance of a diversified portfolio around our reserves bookings so.

Thanks for the question very clear a quick follow up on the portfolio.

Great opportunities in 2020 to rebuild the portfolio 21 again in the Permian 22 was very much an LNG seemed year is is the star of the show for 'twenty three Willow.

Or how do you think about the portfolio where it stands today.

Pretty pleased where the portfolio is a good job of kind of go out across the globe. I think we spent a lot of time over the last five years really caught up the portfolio pretty focused on getting it getting as low cost of supply as we can getting the margins have expanded as we can leading to Canada.

The returns and the productivity that we're seeing today. So we're just hyper focused on making sure. The efficiencies are there and the returns are there and pretty pretty happy with where we stand today and then as you rightly note Bob we're leaning in a bit on some of these mid and longer longer cycle projects. Because we are just very constructive.

I was going to need to solve it is going to need low greenhouse gas emissions intensity oil, it's going to need low cost supply or that's what we're all about that's what we're doing in our portfolio and most recently leaning in on the LNG side, because we think the world is going to can I need this gas is.

As part of the transition that we're going through.

Thanks, very clear thanks, Bob.

Next question.

Okay.

Our next question comes from Neal Dingmann with <unk>. Your line is now open.

Good morning, all thanks for the time my question is around just the production and maybe around the Permian item I'm, just trying to get a sense of you've got I think the one 4%, 1% to 4% type overall growth I'm, just trying to get a sense of expectations for the Permian. If you would back out obviously, what's going on up in Alaska.

You all clarified.

You said, what the expectation is that and it sounds like a second part of that it sounds like it's going to be pretty.

That growth you expect in the Permian I assume that would be pretty linear for the entire year. If you could comment on that.

Yes, Neal this is Nick.

Again for the lower 48 will deliver a production growth net mid single digits and again that the majority of that growth is going to be weighted to the Permian with respect to the profile shape, it's going to be more mid to back end weighted. So we've got some operated larger pads that are going to be coming on kind of a mid year.

To third quarter, and then we've got modest operated by other growth going through the year with more of the kind of the back end for lower 48 does that help.

That's very clear and then.

Just one last one you are obviously in a fantastic position financially we've done some really positive M&A deals in the past I think actually in the last couple of years, among the best that Ive seen out there.

My question what comes M&A, how do you how do you view the landscape today I mean, obviously prices are up maybe.

Commodity prices are up so maybe expectations are higher but I'm just wondering overall, how do you view that the M&A landscape.

Yes.

We're further market everyday were.

We're trading we're thinking about the market, we see what's going on every day, we pay generally there is more consolidation that is needed in our business is pretty tough at these kinds of elevated prices, but we watch it every day I think.

We've been pretty clear and consistent about our financial framework and how do we think about M&A that has not changed so as we think about cost of supply. We think about assets that we can make better or can make our company better or improve our long term plan. We know we know the assets that we like and so we watch those constantly.

It's a tougher market at these kinds of prices to transact.

Some of the transactions that have occurred this year, we've looked at and we've seen them we've watched them. They just don't fit our framework.

They don't they won't they don't make us a better company.

Thank you very clear. Thank you all question.

Okay.

Our next question comes from Paul Sankey with Thank you research. Your line is now open.

Hi, everyone and thanks as always for the great disclosure.

In fact, you guys have been leaders.

All right.

In the industry in many ways.

Starting with the really the first capital discipline cash return framework.

You were in position to make acquisitions of the both into the cycle and now you are saying that you're leaning in the.

Brian Woods.

Two sort of Mega project development, using an $85 oil price assumption is this an indication that the industry is going to have to follow you or is it more that these major opportunities have come up in.

In 2023, and further to the 85 price assumption could you just remind me what gas price assumption you're using.

What would your cuts.

Oil prices went to 60 over the course of the year.

Yes, Thanks, Paul No I think were.

Yes, I think they are.

Our view pretty constructive over the next number of years and through the decades. So at the time you got to do some of these big projects sort of front end of the cycle.

We probably are a bit unique given our global diversified portfolio, we have opportunities in Alaska, Norway in the far east and the Middle East. So we look at those make sure they fit our framework around cost to supply and what we want to go invest in and as we as we look forward. We believe now is the time to be doing these projects, which is why you see us leaning in on the LNG.

Side, we're constructive on the gas.

And why.

We're moving forward with our little project up in Alaska, and I'll make a sidecar. This is what the administration has asked us for U S production.

<unk> mentioned production. This is exactly what the administration has asked us to do as an industry and that's what we're trying to do as a company now looking forward I think we'll talk at aim about where we think mid cycle prices and frankly, we think it's probably come up from where we've been over the last five six years, we'll show that to you at aim and then.

Finally to your last question yes.

We've set a cash return targeted Adwcta 85 brand and I think its $3 25, Henry hub. Those are the assumptions, we've made that underpin the $11 billion. The price would have to go down considerably I mean, you said into the sixties full year average I think before we would talk about about changing that and we're prepared.

To use our cash on the balance sheet to fund. These projects. That's why we have that cash that's why I have that financial strength and resilience. So we're happy to use of cash if we need to so I think it's resilient across a broad range of prices in terms of what we've established as our distribution target for the year.

Great. Thanks, and then following on the leadership instrumental.

Instrumental in the export ban being lifted can you talk a little bit more about willow, there's obviously some.

But you mentioned low GHT can you talk a bit about how it fit alongside what you just said about the administration asking for this.

In terms of its environmental footprint. Thank you very much.

Yes.

It'll be some of the lowest IHG mission production in the world less than 10 kilograms per barrel. So it's it's going to be something that.

We believe is what the world needs right now as we go through this energy transition, we need more oil and gas we need more base load to supply the world reliable and affordable energy and coming from the United States and North America broadly and in general is the right thing to be doing right now and it comes from companies like ours that have over one.

40 year experience, so that our slope, we know how to do this we don't do it responsibly and all the stakeholders supported including the native community on that our slope.

Congrats on the delegation.

Union Labor leaders, who who need this opportunity for employment in Alaska. So there is full alignment behind what we're trying to do there. It's just the politics in D C.

Thanks, Bob.

Michelle I think we have time for one more question.

Yeah.

Yes.

Our last question comes from Bill Janella with Credit Suisse. Your line is now open.

Hey, good morning. Thank you I wanted to ask on the pace of Capex as you move through this year I'm wondering with all of the major project components. There are some quarters that might be.

<unk> than others or if there are any other timing or seasonal factors to consider.

So any guidance you can give there in terms of.

How to think about the progression of quarterly spending for some of those bigger ticket items as well as the base business.

It would be very helpful. Thanks.

Thanks, Bill it's Dominic here, yes, the way it is.

Walk out we think is putting ratable through the year.

We've got consistent activity in the lower 48 level loaded youre right. There is going to be a bit of lumpiness around some of the project spend. So for example in the first quarter, we do have a modest upfront payment in Q1 on Port Arthur Su.

Assuming that sanctioned.

But if you were running of fairly ratable profile out with that.

That would be a good estimate.

Okay.

Alright, thank you.

Yeah.

Okay, great. Thank you.

Operator.

So to wrap up the call. Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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You have a question. Please press star one on your Touchtone phone.

I will now turn the call over to Phil Gresh, Vice President Investor Relations, Sir you may begin.

Yes, Thank you operator, and welcome to everyone joining us for our fourth quarter 2022 earnings conference call on the call. Today are several members of the Conocophillips leadership team, including Ryan Lance Chairman and CEO , Bill Bullock Executive Vice President and Chief Financial Officer, Domenic, Maclin Executive Vice President.

Our strategy sustainability and technology, Nick <unk> Executive Vice President of lower 48, Andy O'brien Senior Vice President of global operations, and Tim Leach advisor to the CEO .

During this call, we'll be making forward looking statements based on current expectations.

<unk> results may differ due to factors noted in today's release and in our periodic SEC filings.

Finally to make we will make reference to some non-GAAP financial measures reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website with that I will turn the call over to Ryan.

Thanks, Phil and thank you to everyone for joining our fourth quarter 2022 earnings conference call.

Sit here today, there are a number of cross currents in the global economy while.

While the energy sector is not immune to potential macro headwinds are a fundamental outlook remains constructive.

On the demand side, we think that growth will continue in 2023 aided by normalization in China mobility. Following the loosening of Covid restrictions, although supply side. We believe the continued producer discipline and the expected impacts of Russian oil and product sanctions are likely to keep balances type.

So while commodity prices are currently not as high as they averaged in 2022, please see duration to this up cycle.

Now stepping back we remain steadfast in our view that a successful energy transition must meet societies fundamentally for secure reliable and affordable energy, while also progressing toward a lower carbon future.

While we all recognize the challenges that global energy policymakers face to achieve the goals of the Paris agreement.

It is clear that doing so requires an all of the above approach.

This can be done by enacting policies that encourage the development of lower emission energy sources and oil and gas resources.

These policies should include efforts aimed at fiscal stability streamlining of the permitting process.

Greece transparency on timelines.

Supporting critical infrastructure.

These are not just necessary for the oil and gas industry, but also for nuclear hydrogen and renewables all of which will be necessary to deliver on the energy transition at the end of the day, it's critical for our administration to remember the North American Energy production is a stabilizing force for both global energy security and meeting energy.

Transition demand.

We think that demand will require investments in medium and long cycle projects. In addition to short cycle U S shale.

This is why you see conocophillips leaning a bit further across our deep and diversified portfolio in 2023.

Shifting to our 2022 performance.

Article Phillips showed continuous strong execution across our triple mandate wechat.

We generated a trailing 12 month return on capital employed of 27%.

Since the spin.

We delivered on our plan to return $15 billion of capital to our shareholders, which represented 53% of our CFO <unk> <unk>.

Excess of our greater than 30% annual through the cycle commitment.

And we further advanced our net zero operational emissions ambition with a new medium term methane intensity target consistent with our recent commitment to joining <unk> to find out.

Now looking ahead conocophillips is well positioned to further deliver on our triple mandate in 2023 with a well balanced capital allocation strategy. This morning, we announced the plan to returned 11 billion of capital to shareholders, which represents about 50% of our forecast and CFO at $80 <unk> the other.

<unk> of our cash flow will be dedicated to reinvesting in the business.

From a portfolio perspective, our deep and well diversified asset base is well positioned to generate solid cash flow growth for decades to come.

This is further evidenced by our organic reserve replacement ratio of 177% in 2022.

We're also enthusiastic about our new LNG opportunities, we are participating in in Qatar.

And I haven't states, which are highly complementary to our existing LNG business.

And we look forward to providing you a comprehensive update about our long term strategy and our financial outlook at our upfront coming analyst and Investor meeting on April 12, We got the New York Stock Exchange.

Now, let me turn the call over to Bill to cover our fourth quarter performance and 2023 guidance in a bit more detail.

Thanks Ryan.

Starting with fourth quarter results, we generated $2 71, and adjusted earnings per share.

Fourth quarter production was 1.758 million barrels of oil equivalent per day, which included a 27000 barrel a day negative impact from weather in the lower 48.

Lower 48 production averaged 997000, including 671 from the Permian.

214 from the Eagle Ford.

And 96000 from the Bakken.

Moving to cash flow fourth quarter, CFO was $6 5 billion, excluding working capital and an average <unk> price of $83 per barrel.

AP LNG distributions were $639 million.

And fourth quarter capital expenditures were $2 5 billion.

Including $2 1 billion of base capital and 300 million for acquisitions and Northfield East payments.

On capital allocation, we returned $5 $1 billion to shareholders through ordinary dividends, the rock payments and share buybacks.

While also reducing gross debt by $400 million.

Full year CFO was $28 5 billion, excluding working capital at an average <unk> price of $94 per barrel in 2022.

Full year AP LNG distributions were $2 2 billion.

And full year total Capex was $10 2 billion with base Capex, achieving our guidance of $8 1 billion.

And $2 1 billion of acquisitions in Northfield East payments.

Full year return of capital was $15 billion, while $3 4 billion went to debt reduction with cash and short term investments ending the year at $9 5 billion.

Turning to 2023 guidance, we forecast full year production will be in a range of $1 76 to one 8 million barrels of oil equivalent per day.

Which represents 1% to 4% organic growth.

Our first quarter production guidance range is $1 72 to $1 $76 million, which.

Which includes 35000, a planned maintenance primarily in Qatar and the lower 48.

Our full year planned maintenance is expected to be similar to 2022.

On capital spending we expect a range of $10 seven to 11, 3 billion, which I will discuss in more detail in a moment.

We expect operating costs of $8 2 billion DD&A of $8 1 billion in corporate segment net loss of $900 million.

For 2023 cash flow, we forecast $22 billion and CFO at $80, a barrel of <unk> 85, Brent and $3 25, Henry hub at current strip prices for regional differentials.

Included in our cash flow forecast is $1 9 billion in AP LNG distributions with $600 million expected in the first quarter.

Now regarding capex.

We provide a waterfall in our prepared materials bridging 2022 actual spending through 2023 guidance.

Starting with base capital spending we forecast an increase from $8 1 billion in 2022 to a range of nine 1% to $9 3 billion in 2023.

The remaining one six to two <unk>.

<unk> billion is allocated longer term projects.

Of this amount $1 five to $1 six is for LNG projects.

Which includes port Arthur.

Northfield East and North field South.

For Port Arthur specifically after factoring in expected project financing, we forecast the Conoco Phillips net investment will be just under $2 billion over the five year investment period.

However, more than half of this capital investment will be in 2023.

For Willow, we're guiding to $100 million to $400 million of incremental spending with a higher end of this range assuming that the project is sanctioned this year.

In summary, we're happy with our strong 2022 results, which would not be possible without the hard work and dedication of our talented workforce.

And we are well positioned to balance investing in our deep and diversified portfolio. This year, while also continuing to return capital to our shareholders.

That concludes our prepared remarks, I'll now turn the call back over to Phil.

Great. Thanks, Bill as a reminder, just before we go to the Q&A. We ask that you. Please keep it to one question and a follow up with that Michelle we're ready to turn it over to you for Q&A.

Thank you we will now begin the question and answer session. If you have a question. Please press star one on your Touchtone phone.

Wish to be removed from the queue. Please press star one again, if you are using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press star one line on your Touchtone telephone.

Okay. Our first question will come from Neil Mehta with Goldman Sachs. Your line is now open.

Yes, good morning team and thanks for taking the time.

Our first question is around Willow and recognize theres still some gating factors to getting it towards that FID, but it seems to be moving the right direction. So just talk about.

How youre thinking about that project what remains outstanding to get it to have I'd.

And then any thoughts on costs as well the latest number we have is $8 billion. All in is that still good to go buyer how should we think about that.

Hey, Neil this is Andy yes, there's been a lot of moving parts on the on what else since the last earnings call.

Can we just step through where we are in the overall approval process.

Can class, where we are with Capex and scope.

With the approval process I think most people saw that the final supplemental environmental impact statement was released by the by the administration earlier this week.

Now that should be published in the Federal Register and the next day or so and then that starts the required 30 day clock before the rod can be issued now.

Given the buyback administration's commitment to the Alaska congressional delegation, we can expect to receive that rod and the first week of March.

Once that Rod has been issued I'll focus for 2023 will be to immediately initiate gravel road construction ramp up fabrication and supply chain activities.

Now we can maybe take a look at the Rodman some detail, but assuming it's consistent with the BLM three pad preferred alternative and there are no new on workflow restrictions added. We would then proceed to final investment decision.

So switching to Capex <unk>.

'twenty three is very dependent on the timing and as Bill mentioned, we've given a range so with the rough timing any resolutions of outstanding issues. What we're guiding is about $100 million to $400 million of incremental spend in 2023.

In terms of the total project costs, we have recently gone out to market to update our cost estimates and we have seen some inflationary pressures.

Also refined the scope, including an update to accommodate the BLM III pad preferred alternative.

So we are in the process of finalizing our cost estimates, but we would anticipate the AFP to first production to be in the 7% to seven and a half billion dollar range.

The increase versus the update we provided in 2021 is split about 50 50 between inflation and scope refinements.

So hope that gives you a pretty good update on where we are with what island.

April Investor Day, where we can happy to go into some more details.

That $7 five and compares to the six before it sounds like.

Apples to apples.

And then Thats correct, that's an apple.

Okay. That's great and then as a follow up is just around return of capital last year was an outstanding year, 53% back to shareholders.

The cash flow and the.

The guidance this year of $11 billion also implies.

Very strong return of capital number.

I know, we often anchor to the 30% or greater than 30%.

Is the message we should be interpreting that theres, a new normal here year around return of capital and the bar has been reset higher.

No there were not trying to message.

But what I remind people as the 30% commitment that we have is a through the cycle commitment. We've also signaled to our results will tell the shareholders that when prices are above our mid cycle price you should expect higher distributions for the company and Thats consistent with what we've done over the last number of years so as we.

Look today at where the strip is trading where the regional differentials are at we've kind of picked $11 billion at at an $80.

It just represents that were constructive with the environment that we see today and we expect the prices to be above our mid cycle price call, which should inform the distributions would be above that 30% as well.

Great. Thanks, Neil next question.

Our next question will come from Doug Leggate with Bank of America. Your line is now and then.

Well, thank you and good morning, everyone.

You guys sorry.

So I think.

I didn't actually get to write down the numbers quickly enough could you just go through again the expected cadence.

Of the three LNG projects.

Disclosures I think we had expected a slower piece on sempra own port Arthur I guess, so could you just walk us through what you. How you expect that cadence to look please that would be really helpful. I've got a follow up please.

About $8 9 billion with a low single digit inflation rate versus 22 exit rate and we've got some phasing in Norway and the additional incremental emissions reduction that gets you to about $9, two which is the midpoint of our guidance and then really the incremental spend is on LNG project and Willow and that gets us to $11 billion.

Midpoint of the guidance range.

And I think that the primary issue here on cadence is likely the front end nature of Port Arthur LNG spend which really the market had no way of knowing.

No.

Youll recall <unk> communicated a phase one gross cost of $10 5 billion for the EPC.

Over the five year investment period.

But the front end nature of the equity component is going to result in over half of that $2 billion occurring in 2023, that's what we've included in our 2023 capital and guidance.

Now the project is still waiting on Friday, but we do expect that in the first quarter and we will be talking to you more about this in April .

But if you have been modeling a more ratable spend over five years for port Arthur that would be about $400 million in 2023 are about the 6% to $700 million less than our guidance. So I think that that might be some of what you're seeing in kind of the LNG spend.

I think it's obvious with over half of the Port Arthur spend in 2023, obviously that the spending 2024 and beyond is going to be less than a ratable rate, but I think that's probably the main gap in in LNG spending that youre seeing.

That's really helpful. Don you're exactly right, we were not expecting half but of course that means the other half is.

It is probably more reasonable I'm guessing over time, but that's done.

Really helpful.

My follow up is a favorite topic of mine, so I hate to get in the weeds here, but.

Again, another sizable deferred tax credits this quarter, although it does kind of look a little bit more.

Almost like you are moving to a near normal based on your U S spending thinking idc's and things of that nature can you maybe just am I thinking about that rates should we be expecting is reasonable.

Third cuts credit going forward in your cash flow and I'll leave it there. Thank you.

Well, yes, so deferred taxes were a source of a $5 billion in the fourth quarter, Doug We had a source of about $700 million in the third quarter.

Now the source of those deferred taxes is primarily due to the impact of intangible drilling costs generating a deferred tax liability is now that we're in a U S cash tax paying position.

Now as we look at 2023 at current investment levels, we'd expect deferred taxes are going to continue to generate a source of cash on a normalized pace with phase.

Basis.

But I would expect the deferred tax source full year to be lower in 2022 now we are in a U S cash tax paying position for the full year, but we also utilize all significant U S. Net operating losses, Nols and EUR credit carry forwards in 2022.

That utilization generated a larger source of cash last year compared to what we're going to be seeing in 2023.

Got it thank you.

Thanks next question.

Okay.

Our next question comes from Steve Richardson with Evercore. Your line is now open.

Thank you.

Ryan there's been a lot of focus on the Permian basin of late certainly from a industry perspective.

And not all of it has been.

Good.

Say and I'd Love, if you just took a moment and help us differentiate.

Conoco's assets in the basin, what you're seeing from your asset.

And.

Certainly some of the performance speaks for itself, but I'd love if you could address that.

Today.

Yes.

Thanks, Steve Let me make a couple of comments and then I'll turn it over to Nick for.

Maybe a couple of his thoughts and a bit more detail.

No we're not worried about.

Our long term development plans in the lower 48, we see durability to our plans and I know theres been a bit of noise about productivity in length and durability.

We've been there for long time, we know what we're doing after our after the acquisitions that we made over the last year and a half.

Wells, they've been performing slightly above the curve expectations across all four basins, including the Permian basin.

In fact.

And you look at our accelerated learning curve, we've drilled the most horizontal wells.

That's great. Thanks, I really appreciate it if I could just one quick follow up Nick could you just address the 25000 acres of swaps and coring up that you mentioned this morning I would.

I mean, one of the questions.

Steve.

Oh, sorry.

Sorry.

No we didn't catch your question.

Sorry, I must be the phone line.

Question is on the.

Yes, the 25000 acres on the core App.

And.

Just wondering if we could address Nick how much more to go is there on that on that side and where are you just looking at the checkerboard of the of the map down there.

Yes, Steve maybe I'll just go back for the whole audience on what we've done in that space.

We've been very focused on the acreage optimization as you mentioned on trades and swaps.

Last year, we completed 15 trades.

And that gives us a total of about 25000 acres.

Concho transaction now a couple of points that I just wanted to address these core ups have doubled the average lateral length of more than a year's worth of inventory that's at our current level of drilling activity now.

Now the ability to drill extended laterals greater than one mile can reduce our cost of supply by 30% to 40% So thats significant.

Now if you will continue as you mentioned the core up in 2023 through <unk>.

The acreage in swaps there, but we've got a significant deep robust inventory with those longer laterals.

Thanks, so much great. Thanks, Steve.

Next question.

Okay.

Our next question comes from John <unk> with Jpmorgan. Your line is open.

Okay.

Hey, guys. Good morning, Thanks for taking my question.

Hi, My first question, just kind of a broad one on the upcoming Investor Day, you guys haven't done one for several years.

Anything on what we can expect from the presentation in terms of the longer term plan or maybe a breakdown of certain aspects of the project.

And that would be great.

Yes, John Thanks.

We will show why we're pretty excited about where the company has got and we've got a better plan.

<unk>.

The strategic and the financial plan, another company or got better duration, better better depth and we'll show we'll show that to you what it means for the company for decades to come I mean, so we're pretty excited about about where it's at we will do a deeper dive into where we're at in the lower 48, our global our global portfolio.

As well as the LNG business that we've been developing here over the last year and a half so I look forward to sharing.

Our excitement around our plans were and send it in and just the quality of what we're doing both strategically and financially.

Great. Thanks, Brian and then.

A question on the guidance for <unk> production.

A little bit below the full year guide and you guys called out the maintenance number there and then maybe just some color on would be helpful.

And how you expect production to be then throughout the year should we expect them to be more backend loaded.

Maybe more mineral given the later ones.

Okay.

Hey, John It's Dominic here, so, yes, I think as bill remark.

We do have above normal seasonal maintenance in the first quarter that Qatar train six and seven but also.

Eagle Ford Sugarloaf, a stabilized our facility down there we've actually been.

Comparing that put a bit of expansion. So that explains the Q1 zero rate, but thereafter.

Expectation is that each quarter will be around 2% to 3% year on year growth. So yes.

So thats really our base case.

Thanks, John .

Next question.

Okay.

Our next question comes from Jeanine Wai.

With Barclays. Your line is now open.

Hi, Good morning, good afternoon, everyone. Thanks for taking our questions.

Our questions. The first one good morning Ryan.

First one maybe following up on Neal's question on the cash return for the year, we realize that it's still early in the year, but you've already declared for the first part of the year.

How are you ultimately thinking about the split of the $11 billion of total cash return between cash and buyback and as the buyback more of a function of your mid cycle price assumptions.

Yes, I think.

The majority of our buyback is tied back to ratably buying our shares at our at our mid cycle price assumptions. So we tried to write ratably buy some shares as we go go through the year and then we buy some variable shares depending on where we see the market I would say is we're going into 2023 right now we're thinking roughly 50, 50% between cash and.

And shares in terms of absolute return back back to the shareholders. So the $11 billion would be split roughly five five and a half that's our thinking as we start the year, but we'll watch the commodity price and where things develop as we go through the course of the year.

Okay very helpful. Thank you I'll pencil that in.

Alright second question sticking with 23, but moving to Capex here.

Yes, let me take a quick high level shot I think if youre kind of looking at exit rates from 2020 period 2022 going into 2023, it's kind of low single digits. If you got to look at it what's the increase annually year over year, it's more like mid single digits I think the difference we're seeing this year, maybe relative to last year as well.

See that mid single digit inflation applying across the whole global portfolio and it's slightly higher in the Permian to the other question that you asked so yes. We're in we're seeing the subcategories of spend that are key to the company actually start to plateau, and maybe have a rollover a little bit.

One that we're watching pretty closely is of CTG.

<unk> some of the raw materials that are going into making those are starting to come down and deflate a little bit. So we're starting to see that to that category of spend sort of rollover. We're seeing the rate of increase got it in the onshore rig market start to lessen a little bit which is good but we need that and so when we kind of wrap all of those categories of spend.

Together for the company it kind of manifest itself in a year of annual year over year inflation in the mid single digits.

Great. Thank you.

Thanks, Jamie next question.

Yeah.

Our next question comes from Ryan tight.

Apologies Todd with Piper Sandler.

Thank you.

Maybe.

I'll follow up on the Permian I'm not sure. If you mentioned this earlier, but can you tell us.

A little bit about what is assumed in your current guidance I guess for both capital and production for the year. It sounds like the guide assumes.

In a flat activity levels in the Permian versus versus late.

2022 is that correct.

In terms of how we should think about activity levels and how should we think about the trajectory of production.

In the Permian over the course of 2023.

Yes, Brian this is Nick.

Let me walk you through that so as you mentioned, we've assumed a level loaded steady state program for 2023 based on that second half of 2022, four rigs and four frac crews.

Our focus for this year will really be around improving capital and operating efficiency now we do expect some modest growth in partner activity as the year progresses, and then we have some larger operated pads that will come online in two Q3 Q.

Maintenance, that's going on and actually I'm pleased to mention that the turnaround that Dominic referred to as five days and we completed that successfully in January now, we will have a little bit of brownfield modifications on that stabilizer through mid February as well.

And then I'll mentioned to kind of month to month will have.

Wells, a little bit of Lumpiness, but it is backend and will be weighted in 2023 for our production profile.

Great. Thank you that's very helpful and then.

As we think about your your emerging kind of global gas strategy, how should we think about your approach to the gas portfolio on these projects should we expect the majority sold under long term contracts with a percentage held for spot sales.

Will you look to correspondingly build out your global gas trading capability similar to European peers.

And maybe as Youre out marketing. These volumes are you seeing anything to comment on in terms of the.

The environment.

Whether whether global gas this tightness is helping.

Sales pricing out there.

Danny.

High level views on their global gas strategy, there would be great.

Okay.

Yes sure this is bill.

So I'll just start with you know, we've got a really strong understanding and presence in the LNG market.

We've had for several years, where we're regularly selling spot volumes into Asia off of our <unk> venture and we do think that Europe is going to be a long term market for U S Gulf Coast.

You will have seen where we recently secured re gas capacity in Germany, which we're really happy about and excited about.

We're looking at the best options in terms of long term placement, but these are 20 year projects off the Gulf Coast and so we think that the long term strength that international pricing relative to U S gas is going to be pretty interesting and that's the that driver and that strength in LNG, we think it's going to be driven by us.

Role in energy transition and reducing carbon emissions so.

As you see us build out our LNG portfolio over the next few years, we may take some longer term contract decisions then there, but right now we're not really disclosing where RAF for competitive reasons in terms of how we're developing that market.

Great. Thanks, Rob Thanks.

Michelle next question.

Okay.

Yeah.

Our next question comes from Devin Mcdermott with Morgan Stanley . Your line is now open.

Hey, good morning, Thanks for taking my questions.

Changing over the next few years outside of Port Arthur where some of the key moving pieces that we should be thinking about across the projects that could move that number higher or lower.

Yes, I think we tried to explain a bit about the front end loading of port Arthur projects. So you ought to expect that is going to come down as you look into the two three or four years some of the other moving pieces.

If the commodity price environment supports that we want to see some ramp in our lower 48 activities to our optimized plateau across.

Across the various assets, you'll see willow ramping up if we get adequate project approval from the federal government.

So badly.

That will come in and then obviously there is some inflationary forces as well as we think about think about where it's going so there's a lot of moving pieces, but.

That's kind of how you should think of the different pieces that we're looking at as we kind of think about the longer term nature of the capital and we'll be prepared to talk about that in a.

At our analyst meeting coming up in April .

Got it makes sense, Hey, just a quick follow up on NFC and NFS are those fairly ratable over the next few years any additional color on those projects specifically.

Yes. This.

This is bill your thoughts.

The fourth quarter, making our initial catch up payment on NFC and then you should expect that those projects are funding through the next couple of years.

Okay. Thank you.

Thanks, Kevin next question.

Okay.

Our next question comes from Paul Cheng with Scotia General Your line is now open.

Hey, guys.

Good morning.

Hey, Michael.

Brian can I go back into Permian, you guys talking about earlier in your prepared remark on the inventory for the two mile well I think the industry also think that free mildly actually will have even better.

Can you talk about that.

Based on where you are today, what's the inventory on the three miles and whether thats on BOP opportunity there you.

Also don't know whether you.

You can rely on the pepto longer term pepto rate that you expect for Permian.

And that win that you will be able to get there.

The first question.

Same question that I have to say.

Impressed that Bakken production, yet that case, Matt sequentially from the third quarter.

Given that the winter storm and keep them so severely.

Off the 27000 barrel per day, how much is on the Bakken than you'd be able to get it. So that you can actually get yet correct.

Alright, Yes. This is Nick.

I will just kind of walk you back through kind of the inventory related to our longer laterals as we've done in the core up again over 60% Paul is greater than two mile laterals and that does include the three miles as well so thats a significant part of our inventory in the Permian Basin. We've actually this last year in 2022 brought on I think.

More than 30 wells that are in the three mile category and are seeing very encouraging results. We will continue to execute those as we go forward as as we continue to core up and do swaps that will give us more inventory as well for that longer lateral execution again, you will see probably cost of supply of about 30% to 40.

The percent reduction as we drill those longer laterals.

No.

So I'm sorry, not dominate for the 60% you were talking about.

How much of what percent of them actually.

Miles category.

Yeah, Paul I don't have that in front of me at this point in time, but let's wait till aim and I'll give you a further update on that overall three mile categorization.

Okay.

Your second part of that first question related to plateau again, we'll update the group on the overall Permian Plateau Eagle Ford Bakken.

April 12, Investor Day, obviously, there's a number of factors that go into that the macro maintaining execution efficiency continuing to capture the learning curve and capital efficiency.

Now with our middle mid single digit growth, we feel thats right in line with what we've communicated earlier.

And then your second question was related to weather I'm glad you brought that one up again Bill you had mentioned 27000 barrels a day for fourth quarter 2022, just a quick breakdown on that Thats 13000 for Permian 10000 for Bakken and then less 4000 in Eagle Ford.

I think you asked kind of maybe quarter to quarter Q3 to Q4, you're right. It was flat at 96000 barrels equivalent per day and Paul The main driver for that is what we had some really strong operated wells that carried into Q4 and then on the operated by others. We had some larger pad projects come.

Online in Q4 that offset that weather.

Thanks, Paul next question.

Sure.

Yeah.

Our next question comes from Bob Brackett with Bernstein. Your line is now open.

Hey, good morning, a bit of an old school question on your reserve replacement historically, LNG <unk> were big blocky chunks of gas reserves going into the portfolio, that's not really going to be the case for our midstream asset like port Arthur but I'm curious can you go into a little more detail on the oil gas mix shift.

On the reserve replacement and how to think about the cadence of LNG coming in through that.

Hey, Bob It's Dominic here, Yeah. So let me talk a bit about I mean, we were obviously very pleased with.

Organic reserve replacement ratio this year of 177%.

The real drivers for that I mean, obviously the LNG, we did have some bookings there for <unk> as we commence payments. So NFC we also.

So some.

Some bookings from AP LNG performance.

From.

Some project advancements in Norway as our international portfolio is contributing but the main the main area. This year was actually in the low 48 development program and Thats, particularly in the Permian and that included an increase to our pud bookings by extending the proved David we have established by reliable technology, which.

As an FCC terms is consistent with SEC requirements and so basically we have a very extensive geoscience and reservoir engineering data set across the Permian now that allows us to support that so.

And you'll be aware Bob just the.

Our rigor in the process and the controls governing the reserves booking process. So this further demonstrates the depth and quality of our lower 48 inventory. So that's really the story this year going forward.

We will continue to see bookings in the lower 48.

We will see bookings in Alaska, obviously with pending.

And then we will continue to see some LNG bookings as well, particularly on the resource projects as we call them <unk>.

And NFS Youre, absolutely right, what you're saying about quarter of that.

So I think youll see a mix going forward as it stands now lower 48 represents about 46% of our reserves and the remainder across international so.

But yes, we are certainly appreciating the performance.

With a diversified portfolio around our reserves bookings. So thanks for the question very clear a quick follow up on the portfolio.

Great opportunities in 2020 to rebuild the portfolio 21 again in the Permian 22 was very much an LNG themed year is is the star of the show for 'twenty three Willow.

Or how do you think about the portfolio where it stands today.

We're pretty pleased where the portfolio is dominantly ticketing good job of kind of go out across the globe. I think we spent a lot of time over the last five years really coring up the portfolio pretty focused on getting it getting as low cost of supply as we can getting into margins has expanded as we can leading to kind of the.

The returns in the and the productivity that we're seeing today. So we're just hyper focused on making sure that efficiencies are there and the returns are there and pretty pretty happy with where we stand today and then as you rightly note Bob we're leaning in a bit on some of these mid and longer longer cycle projects, because we're just very constructive.

The world is going to need to solve it is going to need low greenhouse gas emissions intensity oil, it's going to need low cost supply or that's what we're all about that's what we're doing in our portfolio.

Most recently leaning in on the LNG side, because we think the world is going to can I need this gas is.

As part of the transition that we're going through.

Thanks, very clear thanks, Bob.

Next question.

Okay.

Our next question comes from Neal Dingmann with <unk>. Your line is now open.

Good morning, all thanks for the time my question is around just to production and maybe around the Permian.

Just trying to get a sense of you've got I think the one 4%, 1% to 4% type overall growth I'm, just trying to get a sense of expectations for the Permian. If you would back out obviously, what's going on up in Alaska have you all clarified.

<unk> said, what the expectation is that it sounds like a second part of that it sounds like it's going to be pretty.

That growth you expect in the Permian I assume that would be pretty linear for the entire year. If you can comment on that thanks.

Yes, Neal this is Nick.

We've got some operated larger pads that are going to be coming on kind of a mid year to third quarter and then we've got modest operated by other growth going through the year with more of the kind of the back end for lower 48 does that help.

Okay. That's very clear and then just one last one you are obviously in a fantastic position financially we've done some really positive M&A deals in the past I think actually in the last couple of years is among the best that Ive seen out there Mike.

My question when it comes to M&A, how do you how do you view the landscape today I mean, obviously prices are up maybe.

Commodity price drops, but maybe expectations are higher but just wondering overall, how do you view that the M&A landscape.

Thanks, Dave.

We're the market everyday we are you know.

We're trading we're thinking about the market, we see what's going on every day, we think generally there's more consolidation is needed in our business, it's pretty tough with these kinds of elevated prices, but we watch it every day I think it.

We've been pretty clear and consistent about our financial framework and how do we think about M&A that has not changed so as we think about cost to supply. We think about assets that we can make better or can make our company better or improve our long term plan. We know we know the assets that we like and so we watch those constantly but.

Yes, it's a tougher market at these kinds of prices to transact and <unk>.

Some of the transactions that have occurred this year, we've looked at and we've seen them we've watched them. They just don't fit our framework. So they don't they wont they don't make us a better company.

Thank you very clear thank you all the questions.

Okay.

Our next question comes from Paul Sankey with <unk> Research. Your line is now open.

Hi, everyone and thanks as always for the great disclosure.

In fact, you guys have been leaders.

And in the industry in many ways.

Starting with the really the first capital discipline cash return framework.

You are in a position to make acquisitions at the bottom of the cycle and now you are saying that you would lean again.

The word Brian Woods.

So sort of Mega project development, using an $85 oil price assumption is this an indication that the industry is going to have to follow you or is it more that these major opportunities have come up.

In 2023, and further to the 85 price assumption could you just remind me what gas price assumption you're using.

And what would your cuts.

Oil prices went to 60 over the course of the year.

Yes, Thanks, Paul I think we're.

Yes.

Our view pretty constructive over the next number of years and through for decades. So the time you got to do some of these big projects sort of front end of the cycle.

They are a bit unique given our global diversified portfolio, we have opportunities in Alaska, Norway in the far east and the Middle East. So we look at those make sure they fit our framework around cost to supply and what we want to go invest in and as we as we look forward. We believe now is the time to be doing these projects, which is why you see us leaning in on the LNG.

We're constructive on the gas.

And why.

We're moving forward with our <unk> project up in Alaska, because I'll make a sidecar. This is what the administration has asked us for U S production, but it's low <unk> emission production. This is exactly what the administration has asked us to do as an industry and that's what we're trying to do as a company now looking forward I think we'll talk at aim about where.

We think mid cycle prices.

And frankly, we think it's probably come up from where we've been over the last five six years, we'll show that to you at aim and then finally to your last question, Yes, we do.

We've set a cash return targeted Adwcta 85 brand and I think its $3 25, Henry hub. Those are the assumptions, we've made that underpin the $11 billion. The price would have to go down considerably.

You said into the <unk> full year average I think before we would talk about about changing that and we are prepared to use our cash on the balance sheet to fund. These projects. That's why we have that cash that's why I have that financial strength.

<unk> resilience. So we're happy to use of cash if we need to so I think it's resilient across a broad range of prices in terms of what we've established as our distribution target for the year.

Great. Thanks, and then following on the leadership you have.

Instrumental in the export ban being lifted can you talk a little bit more about willow, there's obviously some.

You mentioned <unk> can you talk a bit about how it fit alongside what you just said about the administration's asking for this.

In terms of its environmental footprint. Thank you very much.

Yes.

It'll be some of the lowest GHT emission production in the world less than 10 kilograms per barrel. So it's you know it's going to be something that.

30 year experienced some of our slope, we know how to do this we don't do it responsibly and all the stakeholders to support it including the native community on that our slope to the congressional delegation.

Labor leaders, who who need this opportunity for employment in Alaska. So there is full alignment behind what we're trying to go do there. It's just the politics in D C.

Thanks, Paul.

Michelle I think we have time for one more question.

Yeah.

Our last question comes from Bill <unk> with Credit Suisse. Your line is now open.

Hey, good morning. Thank you I wanted to ask on the pace of Capex as you move through this year I'm wondering with all of the major project components. There are some quarters that might be chunkier than others or if there are any other timing or seasonal factors to consider.

So any guidance you can give there in terms of how to think about the progression of quarterly spending for some of those bigger ticket items as well as the base business.

Would be very helpful. Thanks.

Thanks, Bill it's Dominic here, yes, the way, it's going to work out we think is pretty ratable through the year.

We've got consistent activity in the lower 48 level loaded.

Right there is going to be a bit of lumpiness around some of the project spend. So for example in the first quarter, we do have a modest upfront payment in Q1 on Port Arthur.

Assuming that sanctioned.

But if you were running of fairly ratable profile out with that.

That would be a good estimate.

Okay.

Great. Thank you.

Yeah.

Okay, great. Thank you.

Operator.

This would wrap up the call. Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

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